Our Get Up `N` Go Got Up And Went

October 05, 1986|By William R. Neikirk, Chicago Tribune.

WASHINGTON — Can America really compete in world markets any more? That disturbing question keeps coming back to me, especially after a week of watching the United States, West Germany and Japan feud over interest rates and currency exchange rates.

It made me angry when the prime minister of Japan said the U.S. economy is flagging partly because of poor literacy rates, but deep down in the gut I know that it`s true.

It made me angry when the finance minister of West Germany said the real cause of America`s trade deficit is not the value of the dollar, but the unproductiveness of its industry, but deep down in the gut I know that it`s true, too.

Somewhere in the last decade America`s competitive spirit died.

The U.S. dollar has dropped more than 40 percent in value in the last year. Yet figures from the Commerce Department show that our exports have not picked up one iota in the interim.

What has happened to this great country of ours? It`s not just foreign trade barriers, though they have been increasing. A new play-it-safe attitude has swept American industry.

Jerome Marks, head of the Commerce Department`s Chicago office, blames it on a new preoccupation with financial assets, as opposed to investment in real assets, such as factories, machinery, new businesses that create jobs.

``Let`s face it,`` Marks said, ``people look at their balance sheets in terms of how they can convert assets into earnings. We have had so many leveraged buyouts. Industry is going away from investing in productive assets.``

The name of the game today is the manipulation of financial assets, Marks continued. ``In 1929, one of the reasons for the stock market crash was that people were buying stock on 10 percent margin. Now, instead of buying stock, they are buying companies with less than 10 percent.``

Marks isn`t sure of all the reasons, but believes that the strong dollar was responsible for much of it, since it priced many U.S. firms out of overseas markets. Many of these markets have not been regained despite the dollar`s devaluation.

In a book entitled ``The High-Flex Society,`` economist Pat Choate of TRW Inc. offers a more provocative reason: the very ownership of our companies.

``This shift has far-reaching consequences, because individuals and institutions invest in the stock market for sharply different reasons:

Individuals are primarily investors looking for long-term performance, while institutions are largely in pursuit of short-term profits.``

Thus, at the very time U.S. business needs to be investing to meet global competition, ``the new owners--the institutions--are pressing for quick results,`` Choate said.

Such thinking has resulted in the kind of paper economy described by economist Robert Reich of Harvard University. The creative energies of our best economic minds are devoted to making money on paper assets.

Choate notes other manifestations. The National Science Foundation reported that a growing number of businesses are spending research-and-developme nt money for minor refinements of existing technologies, rather than achieving technological breakthroughs. It is best to play it safe in this new climate, because developing new products is an expensive proposition with markets so insecure and tough to crack.

Our vaunted venture capital market has turned into a frog. ``Pension funds and institutions now provide over a third of all venture capital,``

Choate said. ``Because of their insistence on short-term results, venture capital funds are being transformed from providers of long-term money and technical support to speculators demanding quick results.``

Back to the stock exchange. Choate notes that in 1953 institutions controlled 15 percent of the equities listed on the New York Stock Exchange, but now they control 90 percent of transactions.

This has switched the focus of the market away from long-term investing to short-term speculation, he said.

This is not something that can be turned around with a single wave of the economic wand.

It will take many actions and will require greater attention by our leaders here as to what makes a country productive and competitive.

We will have to ask basic questions about the quality of our schooling and the cost of our labor, about the effectiveness of our capital markets and the inadequacy of our tax system.

We have to ask: Where did we lose that competitive spirit and what is it going to take to get it back?